by SUSAN MANN
Dairy quota policy changes being introduced next month in Ontario could boost the amount of quota available for farmers to buy on the monthly exchange.
Dairy Farmers of Ontario chair Ralph Dietrich says the changes have been recommended by the quota committee for the five Eastern Canadian provinces (Ontario, Quebec, Nova Scotia, New Brunswick and Prince Edward Island) that are part of the milk pooling agreement. Those provinces share revenues from industrial and fluid milk markets and work co-operatively on other matters. The Dairy Farmers of Ontario board has approved the changes.
“We hope there’s going to be an opportunity for a little more quota to go through the exchange, which will help producers wanting to buy quota,” Dietrich says.
Among the policies:
- All non-saleable quota is being eliminated as of the administration and operation of the August quota exchange. Currently about 10 per cent of Ontario farmers’ quota holdings are non-saleable because “of the quota increases we’ve had in the past years,” Dietrich says. Dairy Farmers does not allow farmers to sell quota added to a producer’s holdings as a part of general increases given to all dairy producers in the province.
- The capped quota price is dropping to $24,000 per kilogram from $25,000 per kilogram starting with the August quota exchange. Dietrich says the conversion of non-saleable to saleable quota “increased the assets of the farmer. To counter that somewhat we did reduce the (quota price) by $1,000. At the end of the day, it’s still a bit of a net gain to the producers.”
- Effective immediately, all future quota increases will be saleable. Previously, general quota increases given to all farmers were non-saleable while general quota decreases were taken from producers’ non-saleable quota amount.
- Starting immediately, farmers selling on-going dairy farms must sell 10 per cent of their quota on the exchange.
- As of Aug. 1, farmers can apply to establish a linked facility, which means a farmer who has a barn that isn't big enough for the cows needed to fill all of their quota will be able to produce milk on two different properties, under the same license, for up to five years. The properties have to be within 10 kilometres of each other. During the five-year time period, the expectation is they would build a new structure, such as a new barn with larger capacity, Dietrich says. After the five years, the quota that was split in two would "come back as one into the new barn."
About the demand for this policy, Dietrich says they've had requests for it in the past "and it seems to be something that makes sense for the industry.
There are also some changes to the new entrant quota assistance program for 2016. Furthermore, the P5 quota committee agreed to develop a parent-to-child quota top-up policy by Feb. 1, 2016.
Dietrich says when the P5 provinces harmonized quota policies in 2009, the provinces agreed to do a review after five years. The review was done during last year and included consultations with farmers. In Ontario, those were at county annual meetings along with at the organization’s policy conferences.
The changes “are some of the results (of the review) that we’re putting into place,” he explains.
The Ontario monthly quota exchange has been chronically short of quota for farmers to buy for several years. A chart on Dairy Farmers’ website listing results for the past 24 months shows for July farmers put in bids for 10,029.63 kilograms of quota while just 442.56 kg were offered for sale. In June, 10,159.37 kg were sought and 429.96 kg were offered for sale.
The highest amount wanted this year so far in one month was in February when 11,210.85 kg were sought and just 470.40 kg were available for sale.
The capped quota price in Ontario and the other P5 provinces, soon to be $24,000 per kg, is the lowest across Canada. The highest is in British Columbia where quota was $44,000 per kg this spring.
Eastern Ontario dairy farmer Andy Senn says the establishment of a linked facility policy won’t help with his situation. Last year, Senn and his business partner and brother-in-law, Franz Suter, unsuccessfully challenged Dairy Farmers policies prohibiting mergers at the Ontario Agriculture, Food and Rural Affairs Appeal Tribunal.
The two farmers had bought an on-going dairy farm near their St-Bernardin-area operation three years ago and wanted to merge their quota with the 177 kg of quota obtained through the purchase. Both Dairy Farmers and the tribunal denied their request.
“It’s completely different,” he says of the new linked facilities policy in comparison with what they were seeking to do. “It (the new policy) has nothing to do with mergers.”
About the new policies, Senn says “hopefully there’s going to be more quota available on the market because they’re making everything saleable now. If we get quota increases, producers who aren’t able to fill it will be able to sell it now.”
About the capped quota price decrease, Senn says it’s not much of a difference.
Caledon-area dairy farmer Philip Armstrong applauds the removal of non-saleable quota. “It’s a good thing and this makes it more straightforward. It (quota) is now all saleable.” BF
Comments
Desperation at the beginning of the end. Or perhaps the end of the beginning of the end.
To improve is to change; to be perfect is to change often.
First of all, reading this article would make the average persons head spin in utter disbelief. What other organization in Canada, yet alone this planet, gets a government granted monopoly where the ones that profit sit on the boards and write the rules willy nilly as they please.
Secondly, if the dairy farmers want to lower the price of quota, simply lower the price they pay themselves for milk. Is this hard to understand? Apparently.
And finally, with this lowering of quota to $24000, watch for the price of land to rise within a few miles of every dairy operation.
Raube Beuerman
Editor: Comment will be published if signed and resubmitted.
Yes..and no Town or City dweller would ever want to see the value of their house go up ??
Good observation. The price of houses in Ontario and the price of quota have both gone up to the point were 1st time buyers find it REALLY difficult to establish and begin a productive life of their own.
In response to "Used to be a Dairy Farmer" http://betterfarming.com/comment/16585#comment-16585
You have made an interesting analogy.
Canada currently has the 2nd least affordable housing in the world (the least affordable is Belgium, likely due to EU head office effect).
IMF, OECD, consultants, Canadian banks disagree on how bad the housing bubble is, but most experts agree it's over-valued by 10%, to 30%, to 60%, to possibly as high as 90%!
When I first heard 90%, I laughed at such nonsense. Then I calculated. I bought my 100 acres of bare land in Northern Ontario in 1980 for $22,500 but it peaked in 2009 at about $300,000 in value. If there was a 90% drop when the bubble bursts, that would be a bubble deflation of $270,000 which drops my property value to $30,000 which would be comparable to 1990 prices.
I stopped laughing.
Bank of Canada cut the interest rate by 0.5% yesterday due to the weak economy (ie. we have entered another recession as of June 30). That cut will be the last party for real estate agents, and will be costly for all who buy or trade up again to a more expensive house, right at the peak of the market
On the SM side, a few days ago we say dairy quota value deflation by DFO.
Perhaps a lot more deflation will soon arrive for all Supply Management quotas, especially after TPP is signed.
All those multi-millionaire Supply Management farmers may want to quickly find themselves a "Greater Fool" who will buy their quota and SM farm before the bubble bursts.
It will need to be a very special fool. At today's prices for farm land, barns, and quota for chicken farming of about $4.6 million, the return on investment is about 2.99%. With chicken farming, you have to work. Alternatively, you can buy a GIC and have a guaranteed income that is similar, no work required.
Just how big of a passion do you think these fools have to be a chicken farmer?
The current generation of chicken farmers can't exit, and the next generation can't enter. Most of the current SM farmers will be forced to ride their investment over the soon to arrive financial cliff.
Glenn Black
Small Flock Poultry Farmers of Canada
Glenn, in order to generate a 3% return on your money in a broiler operation, you must have assumed no borrowing costs, which is highly unlikely.
Here are my numbers, 2.4 million for a barn and 14000 units of quota, and I estimate a net income before tax of about $75000 for an operation that size which would come out at 3% return as you said , but before tax.
Run the numbers assuming the money is borrowed, which it most likely is, and things look horrifying.
You compare the income to a GIC, which is Ok I guess if one cannot stomach the daily fluctuations of equities, but when considering the tax advantage of dividend income over interest income, dividends will provide about twice the amount of income, which is paid monthly or quarterly in cold hard cash.
Regardless of income type, divvy or GIC, it certainly shows how overvalued quota is.
Raube Beuerman
I response to "You're Assuming No Borrowing Costs" http://betterfarming.com/comment/16595#comment-16595
I agree with you. That is why I made the comparison to investing in a risk-free GIC, similar for a "ultra low risk" Supply Management investment. If you get avian flu, you get government subsidy for partial reimbursement. For the rest, you can buy insurance for the barns.
The numbers I quoted came from the June 2010 study by FarmStart titled " New Farmers and Alternative Markets in Supply Management System, sponsored by the Metcalf Foundation." I had put in the link, but BF needed to remove it before approving the publishing of that posting on this Forum.
I agree that ETF, preferred & convertible, or common shares are likely a far greater payout, but these have significantly higher risks, especially now in the world-wide financial turmoil we are in.
The only CAFO, quota-based chicken farmers in Canada today are the ones who were given free quota, inherited it, or married it.
The average age of farmers is In 2011, I'm not sure how much active farming they're doing, but in 2011 there were 5 farmers who were 100 years old. The mode (ie. the largest number of farmers in any age category) was 58 yrs old for males, 54 yrs old for females. In 1991, those same modes were 36 yrs old for males, and 36 yrs old for females.
Therefore we calculate that the mode for males aged by 22 years between 1991 and 2011 (a 20 year span), and the mode for females aged 18 years between 1991 and 2011.
Therefore the male farmers became older by 2 additional years (ie. older farmers entered or stayed farmers, while younger ones got out), and the females became younger by 2 additional years.
Stats Canada adds "Between 1991 and 2011, the number of farms where the oldest operator was less than 40 years old declined almost 75.0% from 74,159 to 20,299 farms. These farms represented 9.9% of the total in 2011 compared to 26.5% in 1991."
This aging of farmers is a growing danger for the Canadian farming community, as well as all those who depend upon the aging farmers (ie. for food &/or jobs, etc.).
Glenn Black
Small Flock Poultry Farmers of Canada
Quota was free
Making non saleable quota, saleable, is setting the stage for a more lucrative buy out when it eventually happens.
Kevin Nixon
Ilderton
Supply Mgmt or Simple Minded it makes me ponder
Would it not make more sense to wait till the details of the TPP first ? Might be two sets of changes in a short time frame .
To say that no other commodity is supply managed , all u have to do is at the cab licences in the city of London were most of them were handed out by the city for $ 1. 00 . Some of those licences have sold for $150000,0 . So it does not only happen in farming.No I am not in sm , have been in the pork side for 40 yrs . Sm is a good system except for the value of qouta . We have had many years that we lost our shirt, and there is nothing cool about that . Herman Minnema
Supply Management is looking like a wounded soldier (I'm in supply management)
Dairy farm policy is to constrictive.Dairy policy should not constrict those wishing to expand to whatever size that is.Broiler and egg producers have no constrictions like this as well as other provinces in the dairy industry.These policies really limit young families from entering the dairy industry.Having to move your whole family to another part of Ontario to expand your herd is backwards policy and maybe that is why the government should look at buying out Supply Management.
Supply Management should only be price protected on the first $500. worth of production per day per location. Most urban people do NOT support the current model for chickens or laying hens. All new Quota should go to new small producers.
I'm going to set up the Baking Board of Ontario and get the government to grant me power to make my own laws. No one will be able to bake unless they buy quotas from the board. Quotas start at $500 for one week of unlimited baking. If you think this is ridiculous then why not the quota system or the Dairy Board? The Dairy Board's only purpose should be to regulate the use of growth hormones and to maintain quality. The quota system is unfair, why should others have to pay to get something that was once free, just level the playing field.
There is no "l'm" or "my" in any marketing board.
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